Disclosure: Real estate agents are not simply tour guides
This is another interesting Seller Property Information Statement (SPIS) case.
The purchasers sought to recover damages in the Superior Court of Justice of Ontario for fraudulent and negligent misprepresentations made by the vendors concerning their property.
The Langfileds purchased a rural property in Tavistock in 1997 and decided to list it for sale in 2003. As part of the listing they executed a Seller Property Information Statement.
The Rileys submitted an Offer on 31 December 2003 and the transaction was closed on 1 April 2004. Subsequently, they found a number of difficulties concerning the operation of several chattels, a crack in the swimming pool, an abandoned well on the property and a water leak in the basement. To say the least, they were extremely disappointed.
The agreement was not conditional upon the purchasers obtaining a satisfactory building inspection report, which is a common provision with respect to re-sale homes. Ms. Riley was aware such an inspection could have been obtained and understood it was their responsibility to inspect. The purchasers’ agent, Mr. Korchensky was not asked to explain the absence of an inspection report condition.
In fact, the SPIS document completed by the vendors was reviewed with the purchasers by their agent before an Offer on the property was prepared.
Here are some of the relevant responses provided:
“STRUCTURAL:
7. Are you aware of any moisture and/or water problems in the basement or crawl space? YES
16. Is there a home inspection report available? Date of report. NO”
The purchasers attended at the premises and were guided through by Mr. Langfield. There was some discussion of the presence of water in the basement and Mr. Langfield had constructed a trench and installed a sump pump to alleviate the problem. He described the basement as being “dry as a bone”, to the Rileys and their agent.
The entire attendance at the premises lasted the duration of one hour, and about twenty minutes were spent in the basement itself. The purchasers were aware of the SPIS, and were aware of the water problem before they submitted an Offer. They were also aware of their right to obtain an inspection of the property.
Following the closing, there was extensive water flooding in the basement, and repairs were required both inside the home and outside in respect to the foundation.
The Rileys allege they were induced into the agreement by the fraudulent misrepresentations of Mr. Langfield. According to the Trial Judge in order to succeed, the Rileys must establish:
(a) the representations were made by Mr. Langfield;
(b) the representations were false;
(c) Mr. Langfield knew the representations were false or such were recklessly made without caring;
(d) the representations did, in fact, induce the Rileys to enter into the agreement to their prejudice.
According to the trial Judge:
“As the basis of the claim is fraudulent or negligent misrepresentation, the plaintiffs must establish statements attributed to Mr. Langfield were false, inaccurate or misleading. In essence, a pre-existing problem is a necessary finding. This is particularly the case when there is disclosure in the SPIS and observations of the plaintiffs as to some water issues. There can be no dispute, water has been present in the basement in the past. Indeed, such is hardly unexpected in an older, rural residence. The claim, however, is for something much greater and is said to be flooding.”
And, further,
“[114] …. As the basis of the claim is fraudulent or negligent misrepresentation, the plaintiffs must establish statements attributed to Mr. Langfield were false, inaccurate or misleading. In essence, a pre-existing problem is a necessary finding. This is particularly the case when there is disclosure in the SPIS and observations of the plaintiffs as to some water issues. There can be no dispute, water has been present in the basement in the past. Indeed, such is hardly unexpected in an older, rural residence. The claim, however, is for something much greater and is said to be flooding.
[115] I am satisfied Mr. Langfield made the comment “dry as a bone” with reference to the basement. Such a statement cannot be considered “mere trade puffery” ….. However, the statement must be considered within the context in which it was made. In this regard, observations of the Rileys, disclosure in the SPIS and other comments of Mr. Langfield are relevant.
[116] The starting point is the Rileys inspection of the property, of which only twenty minutes was spent in the basement. It is difficult to understand how or why a purchaser would contemplate an investment of $184,900.00 after only one visit to the property. More perplexing is that their realtor allowed or, perhaps, encouraged the Rileys to submit an offer to purchase without a further viewing of the property. The SPIS was ignored. A professional home inspection was not requested.
[117] During this limited viewing, the Rileys observed several water problems, including water stains on the recreation room wall and the fruit cellar floor. There was a sump pump in the laundry room. The Rileys knew its purpose was to pump water to the outside of the residence. The sump pump and trenching in the shop was not seen. Mr. Riley was informed of water issues at the rear of the house under the deck which was adjacent to the shop.
[118] At the very least, this limited viewing should have resulted in further inquiry and a more detailed inspection. In this regard, both realtors acknowledged an examination for water or moisture is common practice in older homes.
[119] The SPIS disclosed “moisture and/or water problems in the basement”. I agree with the criticism of such a form as stated by Scott C.J. and Kroft J.A. in Alevizos v. Nirula, supra. Nevertheless, such disclosure is, in essence, a warning to a purchaser that should not be ignored. The SPIS was provided to the Rileys prior to submitting the offer to purchase. The SPIS along with the Rileys’ observations should have resulted in further steps being taken. Yet no due diligence was undertaken by the Rileys or their realtor. The Rileys knew it was their obligation to follow up on the SPIS disclosure and that they had the right of further inspection.
[120] As previously mentioned, it is clear that water has been present in the basement but the evidence does not establish such was as extensive in the past. If there was a defect, I am satisfied it was patent. It was observable. I do not accept the suggestion of concealment as advanced on behalf of the plaintiffs. The sump pump and trench in the shop may not have been seen, hardly unexpected on such a brief viewing. With minimal effort, such would have been observed.
[122] The evidence tendered falls well short of establishing either fraudulent or negligent misrepresentation. The absence of evidence compounds the situation and prevents the evidentiary findings required by the plaintiffs. In the totality of the evidence, therefore, caveat emptor applies. The plaintiffs cannot recover damages with respect to the basement.”
(sections omitted)
The trial Judge specifically reviewed the involvement of the realtors in this case, and I set out his comments verbatim:
“[131] I pause at this point to consider the involvement of the two real estate representatives in this transaction. They are not defendants and, hence, no evidence was tendered as to the standard of care they were required to perform.
[132] The realtors are said to be professional. They received a commission in some unknown amount on closing of the transaction. There can be no doubt they owed a duty of care. Mr. Korchensky and Mr. Rhodes made reference to the importance of checking for water problems, particularly in older homes. Nevertheless, on the evidence presented it appears neither realtor conducted any due diligence inquiry.
[133] Mr. Rhodes said he conducted a “cursory inspection” of the property when preparing the listing agreement. He met with the Langfields to complete the SPIS. Despite the stated disclosure in this document, Mr. Rhodes made no further inquiry.
[134] Mr. Korchensky saw the water or moisture disclosure in the SPIS. Despite his stated concern with this reference, he was content to rely on Mr. Langfield’s limited comments. Mr. Korchensky, it appears, did not recommend a second viewing nor did he suggest a professional home inspection.
[135] Realtors are expected to provide advice and direction to their clients. They are paid to act as professionals. They are not simply tour guides walking through a residence. The cavalier attitude of both realtors with respect to the SPIS is troubling. The purpose of the SPIS is not to protect realtors from liability. They have a due diligence obligation.”
The case was allowed in part with respect to some minor matters which required attention and for which a specific warranty had been included in the agreement, however, by and large the trial Judge dismissed the purchasers’ case.
COMMENT:
In this case, the execution of the SPIS was to the substantial advantage of the vendors. It proved that there was disclosure. It shifted the onus to the purchasers. The purchasers could have made arrangements to protect themselves by:
1) making further inquiries,
2) inspecting the premises,
3) securing certain warranties from the vendors.
The problem here is that the purchasers took no such steps when all the warning signs were there. The Judge looked at the SPIS document in the context of the other statements and comments that had been made by the vendor, and although the vendor had in error described the basement as being “dry as a bone”, this was simply a misstatement. It was a comment made by mistake, when the SPIS disclosure was considered.
The trial Judge was rather critical of the realtors and the lawyers in the presentation of the case. There was simply insufficient evidence called by counsel to prove fraud or negligence. The trial Judge speculated about the notes made by the purchasers’ agent at the time of the inspection. He thought that they might have been produced in evidence.
However, I suspect that there weren’t any. And, the warning to realtors is that there should be notes. This is just as important as a police officer investigating an accident. Make notes! Make careful notes! And, make them as soon as possible after the inspection. Obviously, a camera or video recording would be an excellent way to assist the Court in understanding what took place.
Brian Madigan LL.B., Broker